340B payment cuts require stakeholder attention

INSIGHT ARTICLE
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December 13, 2017

Jon Zolkoske

In our recent webcast, Pharmacy work flow and financial performance optimization, RSM presenters explored various pharmacy operations including formulary, medication order entry, cart fill, automated dispensing machines and more, as well as strategies to improve financial performance in these areas. Discussion also included 340B payment cuts and the impact on pharmacies and health care systems. We’ve provided additional insight on this topic below.

340B payment cuts require stakeholder attentionThe recently finalized Centers for Medicaid and Medicare Services (CMS) proposal to reduce outpatient prospective payment system (OPPS) reimbursement for the 340B program (reduction from 106 percent to 77.5 percent of the average sales price) continues to be met with opposition. Hospital groups have filed a suit challenging the CY2018 OPPS final rule, asserting that CMS exceeded its authority under the Social Security Act and requesting an injunction to prevent the rule from being implemented. A legislative fix could also prevent the 340B cuts after a bipartisan bill was introduced. The original proposed rule received significant congressional opposition and now the final rule could be changed prior to its effective date (Jan. 1, 2018) with attachment to a must-pass bill.

BackgroundIn July 2017, the CMS published its CY2018 hospital OPPS proposed rule. CMS included a specific reduction to reimbursement for separately payable drugs acquired with a discount via the 340B program. CMS explained its rationale for the 340B payment reduction to better align with actual acquisition costs and alleviate the copayments for Medicare beneficiaries.

On Nov. 1, CMS surprisingly finalized the proposal with minor changes to the original proposed 340B payment reduction. As finalized, reimbursement for certain 340B drugs will be paid 77.5 percent of ASP effective Jan. 1, 2018. CMS estimated the total effect of this payment change could exceed $1.6 billion (an increase from $900 million in the proposed rule due to additional claims data).

Due to the budget-neutral system, CMS finalized an increase to payment rates for other non-drug items and services paid under OPPS in an offsetting aggregate amount of 3.2 percent across all providers. CMS exempted certain hospitals in the CY2018 final rule but noted that this may change in the future. Commentary from the final rule revealed that CMS is open to alternative methodologies to distribute savings (e.g., proportionate to high number of indigent patients), but this may affect large (500+ bed) urban hospitals the greatest with an estimated 2.2 percent reduction based on the 340B adjustments.1

Key actions for 340B program stakeholdersUncertainty is not new to 340B covered entities but 340B program hospitals must prepare to implement systematic changes to ensure proper billing of claim modifiers by Jan. 1, 2018. The necessary modifiers are dependent on reimbursement through OPPS and hospital type, including:

A new modifier “JG” must be included on claims for certain2 drugs purchased under the 340B program

Exempt hospital locations include: rural sole community hospitals, children’s hospitals, PPS-exempt freestanding cancer hospitals, and critical access hospitals. This hospital type is not affected because it is not reimbursed via OPPS); however, it is a participant in the 340B program.

A new informational modifier “TB” must be included on claims for certain3 drugs purchased under the 340B program

Additional considerationsThe CMS CY18 OPPS final rule is only one of many notable threats to 340B program hospitals. Medicare’s shift in 340B reimbursement could accelerate other payors to implement two-tier reimbursement. Program oversight was recently scrutinized by congressional subcommittees earlier this year. The current administration highlighted potential 340B changes in an executive order. Most recently a member of the White House’s Office of Management and Budget publically criticized the 340B program.

The 340B program was initially created in 1992 with bipartisan support and has been expanded throughout the lifetime of the program. Despite some of its criticisms, the program has had positive impacts to 340B program hospitals and patients. In addition to engaging with their federal representatives, stakeholders should continue to monitor any future regulatory actions and review options that may mitigate the impact of the final rule, including:

Due to the significant reduction in 340B savings under CY18 OPPS and continued oversight 340B program stakeholders must consider evaluating their future-state strategy and other optimization opportunities, including:

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